Roosevelt Institute | Cornell University

It's Time to Regulate Uber

By Chad StephensonPublished November 8, 2015

As the ridesharing startup continues to expand, lawmakers across the world consider new rules for Uber. The company, armed with loyal customers and billions in venture capital, will do whatever it takes to combat new regulations. Lawmakers must act now to limit Uber's growing monopoly power.
By Chad Stephenson, 11/08/15

This summer, plucky-startup-turned-elephant-in-the-room Uber flexed its muscles in a fight with New York City Mayor Bill de Blasio. After a series of clashes with Uber over its continued attempts to avoid new regulations following its immense growth, Mayor de Blasio struck back with a critical op-ed in the New York Daily News. In the article, he blamed the company for worsening Manhattan traffic and pollution, eroding wages, and gouging customers during high-traffic hours. De Blasio pledged to cap Uber's growth while the city studied the app's impacts on congestion and drafted legislation to right the perceived wrongs. Uber responded with an enormous ad campaign that accused the mayor of collusion with the taxi industry and urged viewers to complain about the proposal destroying 10,000 jobs. One day after New York Governor Andrew Cuomo publicly took Uber's side, de Blasio dropped his plan.

Throughout the nation and the world, Uber is locked in similar regulatory struggles. In San Antonio, Uber halted operations in response to "a regulatory climate that makes it impossible for us to meet the high standard of service that riders … have come to expect." Around six months later, Uber returned to the city after lawmakers backpedaled on a proposal that would have required Uber drivers to purchase a $15 permit each year. In Sao Paulo, Brazil, protesting taxi drivers resulted in an outright ban of ride sharing apps by the city council. Sao Paulo's mayor has stated that Uber will be subject to steep licensing costs and limited permits if it hopes to resume operations in the city.

Buoyed by billions of dollars in venture capital and legions of loyal customers, Uber has become increasingly bold in opposing new regulations on its service. While the company is beloved for providing widespread access to instant, cheap transportation, legislators are scrambling to draft new taxes, licenses, and regulations on ride sharing companies in order to make the sector more closely resemble the taxi companies of yesteryear, or at least pay its fair share of taxes and employee benefits. In doing so, legislators on both sides of the aisle are caught in a political catch-22: face the wrath of Uber and its army of adoring millennials, or allow the company to achieve monopoly power while avoiding historic worker protections like minimum wage.

While legislators are hesitant to stand in Uber's way, due to both the prestige of its service and demonstrated ability to plow through legal obstacles, there are legitimate questions surrounding the company's meteoric rise. Uber classifies its drivers as independent contractors regardless of how many hours they work, allowing it to avoid many legal and financial obligations. Despite functioning very much like a taxi company, it has successfully avoided the fees and licenses paid by cab companies and their workers, giving the company a significant advantage over competitors. While Uber drivers generally earn decent wages, this is likely a result of Uber's extraordinary ability to avoid costly regulations. The company's extreme responses to threats of regulation show that maintaining such a competitive advantage is an extremely important aspect of its strategy going forward.

Uber is the face of the sharing economy. Valued somewhere between sixty and seventy billion dollars, and earning twelve times more revenue than its nearest ride sharing competitor, the company's growth shows no signs of slowing down. Its actions indicate that it is willing and eager to use its increasing power to defend regulatory advantages through any means necessary and force cutthroat competition upon competitors. Barring a significant change in strategy by incumbent taxi companies, Uber will continue to accumulate monopoly power. In markets in which it achieves a full monopoly, Uber will be free to raise prices, lower wages, and wage fiercer battles against lawmakers who would stand in their way.

While it may be too late to save incumbent taxi companies, local and state governments must begin to regulate driver licensing and secure the ability to cap prices in case of Uber gaining city, state, or national monopolies.  If Uber is destined to become the next great monopoly, which appears highly possible, the government must be prepared to protect the common good from abuses of the free market.